11.0. ESSENTIAL REQUISITES OF CONTRACTS

11.0 CLASSES OF ELEMENTS OF A CONTRACT 

ART. 1318. There is no contract unless the following requisites concur:

 (1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established

There are different elements of a contract:

1. Essential elements. The requisite parts or those important parts of a contract. A valid contract should manifests all the essential elements of a contract.

• Common - those present in all contracts, namely:
• Consent
• Object
• Cause 
•  Special - those which are not common to all contracts or which may be present only in certain specified contracts, which can be noted in:
• As to form [Examples: public instrument in donation of immovable property, delivery in real contracts, registration in real estate mortgage, chattel mortgage]
• As to subject matter [Examples: real property in antichresis, personal property in pledge]
• As to consideration or cause [Examples: price in sale, lease, liberality in commodatum]

1. Natural elements. Parts which are presumed to exist in certain contracts unless stipulated [Examples: warranty against eviction, warranty against hidden defects in sale]
2. Accidental elements. The particular stipulations, clauses, terms, and conditions, established by the parties in their contract [Examples: conditions, period, interest, penalty].

11.1. CONSENT

ART. 1319: Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.

Consent is the conformity or concurrence of wills (offer and acceptance). It is the agreement f the will of one contracting party with that of another.

It is the meeting of the minds or mutual assent between the parties of the subject matter and the cause which are to constitute the contract. Mutual assent or agreement takes place when there is an offer and acceptance of the offer.

Offer is a proposal made by one party (offerer) to another (offeree), indicating a willingness to enter into a contract. It is more than an expression of desire or hope.

11.2. VALIDITY OF AN OFFER

1. The offer must be certain or definite so that the liability (or the rights) of the parties may be exactly fixed because it is necessary that the acceptance be identical with the offer.
2. An offer made in jest o in anger,  or while emotionally upset or in other ways indicating that the same was not seriously intended is not a valid offer.

Acceptance is the manifestation by the offeree of his assent to all the terms of the offer. Without acceptance, there can be no meeting of the minds between the parties.

11.3. ACCEPTANCE OF OFFER

ART. 1320: An acceptance may be expressed or implied.

An expressed acceptance in the form of a promise to pay a certain or to do something, may be oral or written.
An implied acceptance is one that is inferred from act or conduct. 

11.4. MATTERS FIXED BY THE OFFERER

ART. 1321: The person making the offer may fix the time, place, and the manner of acceptance, all of which must be complied with.

The person making the offer has the right to prescribe the time, the place, and the manner of acceptance which must be complied with.
A counter-offer can also be constituted as acceptance departing from the terms of the offer. The counter-offer can extinguish the offer and causes a new offer.

11.5. COMMUNICATION OF THE OFFER

The offer must be communicated and received by the offeree.

11.6. COMMUNICATION OF ACCEPTANCE

ART. 1322: An offer made through an agent is accepted from the time acceptance is communicated to him.

1. To offerer. The acceptance of the offer must be absolute.
2. To agent.  An agent is considered an extension of the personality of his principal.

11.7. WHEN OFFER IS INEFFECTIVE

ART. 1323: An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.

The validity of an offer can become ineffective because of the following between parties:

• Death
• Civil interdiction
• Insanity
• Insolvency 

The other grounds for the ineffectivity are as follows:

• Failure to comply with the condition of the offer as to the time, place, and the manner of payment
• The expiration of the period fixed in the offer for acceptance
• The destruction of the thing due before acceptance
• Rejection of the offer

11.8. CONTRACT OF OPTION

ART. 1324: When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.

1. Option contract - one giving a person for a consideration a certain period within which to accept the offer of the offerer.
2. Option period - the period given within which the offeree must accept the offer
3. Option money - the money paid or promised to be paid in consideration for the option.

11.9. BUSINESS ADVERTISEMENTS

ART. 1325: Unless it appears otherwise, business advertisements of things for sale are note definite offers, but mere invitations to make an offer.

Business advertisements of things for sale are not definite offers acceptance of which will perfect a contract but are merely invitations to the reader to make an offer.

11.10. ADVERTISEMENTS FOR BIDDERS

ART. 1326: Advertisements for bidders are simply invitations to make proposals, nd the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.

In an advertisement for bidders, the advertiser is not the one making the offer.

As a general rule, the advertiser is not bound to accept the highest bidder or the lowest bidder, unless the contrary appears.

11.11. PERSONS WHO CANNOT GIVE CONSENT

ART. 1327: The following cannot give consent to a contract:

(1) Unemancipated minors

(2) Insane of demented persons, and deaf-mutes who do not know how to write. 

A contract entered into where one of the parties is incapable of giving consent to a contract is voidable. Those who are incapacitated to give consent:

1. Unemancipated minors - Those persons who have not yet reached the age of majority (18 years old) and are still subject to parental authority
2. Insane or demented persons - The insanity must exist at the time of contracting. Unless proved otherwise, a person is presumed sane.
3. Deaf-mutes - If deaf-mute knows how to write, the contract is valid for then he is capable of giving intelligent consent. 

  

11.12. CONTRACTS ENTERED DURING LUCID INTERVAL

ART. 1328: Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are avoidable.

Lucid interval is a temporary period of sanity. A contract entered into by an insane or demented person during a lucid interval is valid. It must be shown that there is a full return of the mind to sanity as to enable him to understand the contract he is entering into. 

11.13. EFFECT OF DRUNKENNESS AND HYPNOTIC SPELL

Drunkenness and hypnotic spell impair the capacity of a person to give intelligent consent.

These conditions are equivalent to temporary insanity.

11.14. MODIFICATIONS FOR INCAPACITY

ART. 1329: The incapacity declared in ART 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws.

1. Necessaries delivered to a minor or other person without capacity to act must pay a reasonable price.
2. A minor may contract for health and accident insurance for his life and beneficiaries appointed to the close family.
3. A contract is valid if entered into through a guardian or legal  representative. 
4. A contract is valid where the minor misrepresented his age and convincingly led the other party to believe in his legal capacity.
5. A contract is valid where a minor voluntarily pays a sum of money or delivers a fungible thing in fulfillment of his obligation and the obligee has spend or consumed it in good faith.

11.15. OTHER SPECIAL DISQUALIFICATIONS

The following are considered incompetents and may be placed under guardianship:

1. Persons suffering the accessory penalty civil  interdiction
2. Hospitalized lepers
3. Prodigals
4. Deaf and dumb who are unable to read and write
5. Those who are of unsound mind even though they have lucid intervals
6. Those, who, by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation.

11.16. CHARACTERISTICS OF CONSENT

ART. 1330: A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable.

In order that consent may be valid for purposes of contract, it is required, not only that it exists, but that it must be given with exact understanding over the thing consented to. There is no valid consent unless:

1. It is intelligent - there is capacity to act.
2. It is free and voluntarily - there is no vitiation of consent by reason of violence or intimidation.
3. It is conscious or spontaneous - there is no vitiation of consent by reason of mistake, undue influence, or fraud.

11.17. VICES OF CONSENT

Aside from incapacity and simulation of contract, the following vitiate consent:

1. Error or mistake
2. Violence or force
3. Intimidation or threat or duress
4. Undue influence
5. Fraud or deceit

Causes vitiating consent are temporary and refers to the contract itself.

Causes of incapacity are permanent and refers to the person entering into the contract.

Both make a contract "voidable" only not void.

11.18. MISTAKE

ART. 1331: In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. 

A simple mitake of account shall give rise to its correction. 

Mistake or error is the false notion of a thing or a fact material to the contract. 

11.19. NATURE OF MISTAKE

1. Mistake may be of fact or of law. It may arise from ignorance or lack of knowledge.
2. The mistake contemplated by law is substantial mistake of fact, that is, the party would not have given his consent had he known of the mistake. 
3. The mistake may be unilateral, when only one party is mistaken about a material fact, or bilateral (or mutual) when both parties are in error.

11.20. MISTAKE OF FACT TO WHICH LAW REFERS

In order that mistake may vitiate consent, it must refer to:

1. The substance of the thing which is the object of the contract
2. Those conditions which have principally moved one or both parties to enter into the contract
3. The identity or qualifications of one of the parties provided the same was the principal cause of the contract.

11.21. MISTAKE OF FACT WHICH DOES NOT VITIATE CONSENT

1. Error with incidents of a thing or its accidental qualities [Examples: acceptability of a residential house to means of transportation; maximum speed of a car] not taken as the principal consideration in the contract.
2. Mistake as to quantity or amount.
3. Errors  as regards the motives of the contract.
4. Mistake as regards the identity or qualifications or party.
5. Error which could have been avoided by the party alleging it, or which refers to a fact known to him.

11.22.  EFFECT OF MISTAKE OF ACCOUNT

1. Where mistake simple.  A simple mistake of account or calculation does not avoid a contract because it does not affect its essential requisites.
2. Where mistake gross. Where the mistake was so gross that it was clearly apparent to one party and would be impossible to escape his notice.

10. GENERAL PROVISIONS OF CONTRACTS

ART. 1305: A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service."

The two factors vital for contracts are:

1. There should be two contracting parties.
2. A party is bound to the fulfillment to give, to do, or not to do.

A contract is one source of obligation. Hence, if an obligation is not accepted, there could be no contract.

A contract is a binding agreement. A contract should be lawful to be valid and enforceable. Those agreements that are not enforced in courts of justice are not contracts; they are moral or social agreements. Contracts create legally enforceable obligations but agreements are a general entity.

10.1. CLASSIFICATIONS OF CONTRACTS

ACCORDING TO RISKS:

1. Commutative - the undertaking of one party is equal to that of the other (Examples: sale, lease)
2. Aleatory - a contract which depends upon an uncertain event or contingency for benefit or loss (Example: insurance, sale of hope)

ACCORDING TO LIABILITY

1. Unilateral - a contract where only one of the parties has an obligation (Examples: Commodatum, gratuitous deposit)
2. Bilateral - a contract giving rise to reciprocal obligations (Examples: lease, sale)

ACCORDING TO STATUS

1. Executory - it has not yet been completely performed by both parties
2. Executed - it has been fully and satisfactorily completed by both parties.

ACCORDING TO DEPENDENCE TO ANOTHER CONTRACT

1. Preparatory - it is entered into as a means to an end (Examples: agency, partnership)
2. Accessory - it is dependent upon another contract (Examples: mortgage, guaranty)
3. Principal - it does not depend on another contract for its existence or validity (Examples: sale, lease)

ACCORDING TO DEPENDENCE OF PART OF CONTRACT TO OTHER PARTS

1. Indivisible or entire - each part is dependent upon the other parts (Example: sale of a dining set - table and chairs)
2. Divisible - one part of the contract may be satisfactorily performed independently.

10.2. VALIDITY OF CONTRACTS

ART. 1306: The contracting parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy."

A contract is considered valid when it meets all the legal requirements and limitations for the type of agreement involved. The Constitution guarantees individuals with the right to enter into contract (Freedom of Contract).

10.2.1. LIMITATIONS ON CONTRACTUAL STIPULATIONS

Limitations to the freedom of contract are as follows:

1. Law - A fundamental requirement to all contracts is they must be in accordance to an applicable statute. The law sets limits.
2. Police power - All contractual obligations are subject to the possible exercise of the police power as mere enforcement of one of the conditions deemed imposed in all contracts.

A. CONTRACTS MUST NOT BE CONTRARY TO THE LAW

A contract cannot be given effect if it is contrary to law because law is superior to a contract. Any contract executed against the law is void, except the law authorizes its validity.

B. CONTRACTS MUST NOT BE CONTRARY TO MORALS

Morals deal with norms of good and right conduct evolved in a community.

C. CONTRACTS MUST NOT BE CONTRARY TO GOOD CUSTOMS

Customs consist of habits and practices which through long usage have been followed and enforced by society. It has the force of law when recognized and enforced by law.

D. CONTRACTS MUST NOT BE CONTRARY TO PUBLIC ORDER

Public order refers principally to public safety.

E. CONTRACTS MUST NOT BE CONTRARY TO PUBLIC POLICY

Public policy is broader than public order, as the former may refer not only to public safety but also to considerations which are moved by the common good.

A contract which has a tendency to be injurious to the public or is against the public good is contrary to public policy.

10.3. CONTRACTS ACCORDING TO ITS NAME OR DESIGNATION

ART. 1307: Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Law and Obligations, by the rules governing the most analogous nominate contracts and by the customs of the place.

A. NOMINATE CONTRACT

A contract which has a specific name or designation in law (Examples: commodatum, lease, agency, sale)

B. INNOMINATE CONTRACT

One without any specific name or designation in law.

10.3.1. KINDS OF INNOMINATE CONTRACT

The different kinds are the following:

1. do ut des        ( I give that you may give)
2. do ut facias     (I give that you may do)
3. facto ut des    (I do that you may give)
4. facto ut facias (I do that you may do)

10.3.2. REASONS FOR INNOMINATE CONTRACTS

1. Impossibility of anticipating all forms of agreement
2. Progress of man's sociological and economic relationships

10.3.3. RULES GOVERNING INNOMINATE CONTRACTS

1. Agreement of the parties
2. Provisions of the Civil Code on obligations and contracts
3. Rules governing the most analogous contracts
4. Customs of a place

10.4. BINDING POWER OF CONTRACTS

ART. 1308: The contract must bind both contracting parties, its validity or compliance cannot be left to the will of one of them.

The obligation resulting from a contract binds both parties in order to be enforced.

It is a fundamental rule that no party can renounce or violate the law of the contract without the consent of the other.

10.5. DETERMINATION OF PERFORMANCE BY A THIRD PERSON

ART. 1309: The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both cotnracting parties.

Although the compliance of a contract cannot be left to the will on one of the contracting parties, the determination of its performance may be left to a third person. The decision shall bind the parties only after it has been made known to both parties.

10.5.1 EFFECT WHEN DETERMINATION IS UNJUST

ART. 1311: Contracts take effect only between the parties, their assigns and hers, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. 

As a general rule, only the parties, their assigns, and heirs can have rights and obligations under the contract. The act, decaration, or ommission of a person cannot affect another without the latter's authorization or ratification.

There are also cases where the obligations arising from the contract are not transmissible:

1. By their nature (like a contract involving personal skills: painting, singing)
2. By stipulation (in accordance with the principle of freedom to contract)
3. By provision of law (as in agency, partnership, and commodatum)

10.5.2. THIRD PERSONS AFFECTED BY A CONTRACT

A stranger or third person has no standing in law to demand the enforcement of a contract or question its validity except in the following cases:

1. In contracts containing a stipulation in favor of a third person (stipulation pour autrui)
2. In contracts creating real rights
3. In contracts entered into to defraud creditors
4. In contracts which have been violated at the inducement of a third person

10.5.3. STIPULATION POUR AUTRUI

A stipulation in a contract clearly and deliberately conferring a favor upon a third person who has a right to demand its fulfillment provided he communicates his acceptance to the obligor before its revocation by the obligee or the original parties.

10.5.4. CLASSES OF STIPULATIONS POUR AUTRUI

Stipulations in favor of a third person may be divided into two classes:

1. The stipulation confers a gift.
2. Those where an obligation is due from the promise to the third person. (Example: a transfer of property is coupled wit the purchaser's promise to pay a debt owing from the seller to a third person.)

10.5.5. REQUISITES OF STIPULATION POUR AUTRUI

1. The contracting parties must have clearly and deliberately conferred a favor upon a third person.
2. The third person must have communicated his acceptance to the obligor before its revocation by the obligee or the original parties
3. The stipulation in favor of the third person should be a part, not the whole, of the contract
4. The favorable stipulation should not be conditioned or compensated by any kind of obligation
5. Neither of the contracting parties bears the legal representation or authorization of the third party for the rules on agency they will apply.

10.5.6. REAL RIGHTS OF THIRD PERSONS

ART. 1312: In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration laws.

Third persons who come into possession of the object of a contract over which there is a real right are bound. A real right is binding against the whole world and attaches to the property over which it is exercised.

However, if the real right is not registered, third persons who acted in good faith are protected under the provisions of the Property Registration Decree.

10.5.7. CONTRACTS DEFRAUDING CREDITORS

ART. 1313: Creditors are protected in cases of contracts intended to defraud them.

The creditor has the right to impugn contracts intended to defraud them.

10.5.8. CONTRACTS VIOLATED INDUCED BY A THIRD PERSON

ART. 1314: Any third person who induces another to violate his contract shall be liable for damages to teh other contracting party. 

 This is a rule of American Law. An instance when a stranger to a contract can be sued for damages for his unwarranted interference with the contract. It presupposes that the contract interferred with is valid and the third person has knowledge of the existence of the contract.

10.6. CLASSIFICATION OF CONTRACTS ACCORDING TO PERFECTION

ART. 1315: Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may ne keeping with good faith, usage and law.

ART. 1316: Real contracts, such as deposit, pledge, and commodatum, are not perfected until the delivery of the object of the obligation. 

According to perfection, contracts are divided as follows:

1. Consensual contract - perfected by mere consent
2. Real contract - perfected by the delivery of the thing subject matter of the contract
3. Solemn contract - requires compliance with certain formalities prescribed by law (Example: donation of real property which must be in a public instrument). 

10.7. STAGES IN THE LIFE OF A CONTRACT

1. Preparation or negotiation. Preliminary steps taken by the parties leading to the perfection of a contract. The parties have yet to arrive at a definite agreement.
2. Perfection or birth. The parties have come to a definite agreement or meeting of the minds.
3. Consummation or termination. When the parties have performed their respective obligations.

10.8. HOW CONTRACTS ARE PERFECTED

1. For consensual contracts, by mere consent of the parties regarding the subject matter. In the absence of delivery, perfection does not transfer title or create real right but it gives rise to obligations.
2. For real contracts, perfection is by delivery, actual or constructive, of the object of the obligation.
3. For solemn contracts, a necessity for perfection is the law required that a contract be in some form to be valid.

10.9. EFFECT OF PERFECTION OF CONTRACT

From the moment of agreement of both parties, they are bound to:

1. the fulfillment of what has been expressly stipulated
2. all consequences which may be in keeping with good faith, usage, and law.

9.4. OBLIGATIONS WITH A PERIOD

"ART 1193: Obligations for whose fulfillment a day certail has been fixed, shall be demandable only when that day comes.

 Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is undestood to be that which must necessarily come, although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceeding section. 

An obligation with a period is one whose effects or consequences are subjected in one way or another to the expiration or arrival of said period or term. 

A period is a future and certain event upon the arrival of which the obligation (or right) subject to it either arises or is terminated. It is a day certain which must necessarily come.

9.4.1. KINDS OF PERIOD OF TERM

ACCORDING TO EFFECT

1. Suspensive period (ex die) - the obligation begins only from a day upon the arrival of period.
2. Resolutory period (in diem) - the obligation is valid uo to a day certain and terminates upon arrival of the period.

ACCORDING TO SOURCE

1. Legal period - period provided by laws
2. Conventional or voluntary period - when it is agreed to by the parties
3. Judicial period - when it is fixed by the court

ACCORDING TO DEFINITENESS

1. Definite period - when it is fixed or it is known when it will come
2. Indefinite period - when it is not fixed or it is not known when it will come

9.4.2. LOSS OR DETERIORATION

"ART. 1194: In case of loss, deterioration or improvement of the thing before the arrival of teh day certain, the rules in Art. 1189 shall be observed.

9.4.3. PAYMENT BEFORE ARRIVAL OF PERIOD

 "ART. 1195: Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits, and interests."

 The recovery of what has been paid by mistake before the fulfillment of a suspensive condition is allowed.

The creditor cannot unjustly retain the thing or money received before the arrival of the period.

9.4.4. DEBTOR PRESUMED AWARE OF PERIOD

The debtor is presumed to know that debt is not yet due.

The obligor many no longer recover the thing or money once the period has arrived but he can recover the fruits or interests from the date of premature performance to the date of maturity of the obligation.

"ART. 1197: If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duartion thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. 

If the obligation does not state a period and no period is intended, the court is not authorized to fix a period. 

9.4.5. OBLIGATION DEMANDED BEFORE LAPSE OF PERIOD

"ART. 1198: The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt.

(2) When he does not furnish to the creditor the guaranties and securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities ater their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.

(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period.

(5) When the debtor attempts to abscond. 

9.3. PURE AND CONDITIONAL OBLIGATIONS

"ART. 1179: Every obligation whose performance does not depend upon a future or unertain event, or upon a future or uncertain event, or upon a past event unknown to the parties, is demanadable at once.

 Every obligation which contain a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event."

Pure obligation is one free from any condition and there is no period of fulfillment, thus it is immediately demandable.

Conditional obligation is one where its fulfillment is upon the condition stipulated.

Condition is a future and uncertain event which can draw the effectivity or extinguishment of an obligation.

9.3.1. KINDS OF CONDITION

1. Suspensive condition - the fulfillment of the condition will give rise to an obligation.
2. Resolutory condition - the fulfillment of the condition will extinguish an obligation.

9.3.2. DURATION OF PERIOD DEPENDING ON THE WILL OF DEBTOR

"ART. 1180: When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period."

Period is a future and certain event upon the subject matter of an obligation may either arise or extinguished.

1. The debtor promises to pay when his means permit him to do so. There is no definite time frame given.
2. The debtor binds himself to pay.
• Little by little
• As soon as possible
• From time to time
• At any time I have the money
• In partial payments
• When I am in a position to pay

9.3.3. EFFECTS OF HAPPENING OF CONDITION

"ART. 1181: In conditional obligations, the acquisition of rights, as well as teh extinguishment of loss of those already acquired, shall depend upon the happening of the event which constitutes the condition."

1. Acquisition of rights
2. Loss of rights already acquired

9.3.4. CLASSIFICATION OF CONDITIONS

"ART. 1182: When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code."

AS TO EFFECT:

1. Suspensive - the happening gives rise to the obligation
2. Resolutory - The happening extinguishes the obligation

AS TO FORM:

1. Express - the condition is clearly stated
2. Implied - the condition is merely inferred

AS TO POSSIBILITY:

1. Possible - the condition is capable of fulfillment, legally and physically
2. Impossible - the condition is not capable of fulfillment, legally or physically

AS TO CAUSE OR ORIGIN:

1. Potestative - the condition depends upon the will of one of the contracting parties
2. Casual - the condition depends upon chance or upon the will of a third person
3. Mixed - the condition depends partly upon chance and partly upon teh will of a third person.

AS TO MODE:

1. Positive - the condition consists of the performance of an act.
2. Negative - the condition consists of the omission of an act.

AS TO NUMBERS:

1. Conjunctive - there are several conditions and all must be fulfilled
2. Disjunctive - there are several conditions and only one or some of them must be fulfilled

AS TO DIVISIBILITY:

1. Divisible - the condition is susceptible of partial performance
2. Indivisible - the condition is not susceptible of partial performance

9.3.5. POTESTATIVE CONDITION

A condition suspensive in nature and which depends upon the sole will of one of the contracting parties.

9.3.6. SUSPENSIVE CONDITION

WHEN SUSPENSIVE CONDITION DEPENDS UPON THE WILL OF DEBTOR

1. Conditional obligation void. The condition depends solely upon the will of the debtor. There is no burden on the debtor and no juridical tie is created.
• I will pay you if I want.
• I will pay you after I receive a loan from a bank.
• I will continue to lease your property for as long as I need the premises and pay the rent.
2. Only the condition void. The obligation is pre-existing and does not depend for its existence upon the fulfillment by the debtor of the postestative condition, only the condition is void leaving unaffected the obligation itself.
• Jane borrowed money from John, payable in a month. Subsequently, she promised to pay after selling her car where John agreed.  >> The condition is void but the obligation still exists.

WHEN SUSPENSIVE CONDITION DEPENDS UPON THE WILL OF CREDITOR

If the condition depends exclusively upon the will of the creditor, the obligation is valid. (Example: I will pay you my indebtedness upon your demand.)

WHEN RESOLUTORY CONDITION DEPENDS UPON THE WILL OF DEBTOR

If the condition is resolutory in nature, the obligation is valid although its fulfillment depends upon the sole will of the debtor. The fulfillment of the condition merely causes the extinguishment or loss of rights already acquired.

9.3.7. CASUAL CONDITION

If the suspensive condition depends upon chance or upon the will of a third person, the obligation subject to it is valid.

(Example: A building contractor obliges himself to repair at his expense any damage that may be caused to his building by any earthquake occurring within 10 years from the date of the completion of its construction.)

9.3.8. MIXED CONDITION

The obligation is valid if the suspensive condition depends partly upon chance and partly upon the will of a third person.

(Example: A building contractor obliges himself to repair at his expense any damage that may be caused to his building by an earthquake if found by a panel of arbitrators that construction defects contributed in any way to the damage.)

9.3.9. SUSPENSIVE CONDITIONS

"ART. 1183: Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon."

The Article refers to suspensive conditions. It only applies when the impossibility already existed at the time of constitution of the obligation.

9.3.9.1. KINDS OF IMPOSSIBLE CONDITIONS

1. Physically impossible conditions - ones which cannot exist or cannot be done.
2. Legally impossible conditions - those which are contrary to law, morals, good customs, public order, or public policy.

9.3.9.2. EFFECT OF IMPOSSIBLE CONDITIONS

1. Conditional obligation is void. The obligor knows his obligation cannot be fulfilled. He has no intention to comply with his obligation.
2. Conditional obligation valid. If the condition is negative, that is, not to do an impossible thing, it is disregarded and the obligation is rendered pure and valid.
3. Only the affected obligation void. If the obligation is divisible, the part thereof not affected by the impossible condition shall be valid. (
4. Only the condition void. If the obligation is preexisting and does not depend upon the fulfillment of the condition which is impossible, for its existence, only the condition is void. (

9.3.10. POSITIVE CONDITION

"ART. 1184: The condition that some extent happen at a determinate time shall extinguish teh obligation as soon as teh time expires or if it has become indubitable that the event will not take place."

 Positive condition is the happening of an event at a determinate time. The obligation is extinguished when:

1. As soon as the time expires without the event taking place
2. As soon as it has become indubitable that the event will not take place although the time specified has not expired.

9.3.11. NEGATIVE CONDITION

"ART 1185: The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if has become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation." 

A condition when an event will not happen at a determinate time. The obligation shall become effective and binding: 

1. From the moment the time indicated has elapsed without the event taking place.
2. From the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed.

(Example: Richie binds himself to give 10,000Php to Eddie if he is not yet married to Lisa on the end of the year.
a. Richie is not obliged to pay 10,000 if Eddie marries Lisa on December 31.b. Richie is liable to pay if Eddie if he does not marry Lisa on December 31 but marries her on January 01.c. Suppose Lisa meets an accident and dies on December 20 without being married to Eddie, the obligation is rendered effective and Richie should pay 10,000Php to Eddie.

9.3.12. CONSTRUCTIVE FULFILLMENT 

"ART. 1186: The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment."

 

1. The condition is suspensive.
2. The obligor actually prevents the fulfillment of the condition.
3. He acts voluntarily.

9.3.13. RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION

"ART. 1187: The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate teh fruits and interests received, unless fromt he nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

 In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with."

• An obligation to give subject to a suspensive condition becomes demandable only upon the fulfillment of the condition. However, once the condition is fulfilled, its effects shall retroact to the day when the obligation was constituted.
• With respect to the retroactive effect of the fulfillment of a suspensive condition, in obligations to do or not to do, no fixed rule is provided.

RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS IN OBLIGATIONS TO GIVE

• In reciprocal obligations
• In unilateral obligations

9.3.14. RIGHTS PENDING FULFILLMENT OF SUSPENSIVE CONDITION

"ART. 1188: The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition." 

1. Rights of creditor. He may take or bring appropriate actions for the preservation of his right, as the debtor may render nugatory the obligation upon the happening of the condition.
2. Rights of debtor. He is entitled to recover what he  has paid by mistake prior to the happening of the suspensive condition. This right is granted to the debtor because the creditor may or may not be able to fulfill the condition imposed and hence, it is not certain that the obligation will arise.

9.3.15. LOSS AND DETERIORATION

"ART. 1189: When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during teh pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished.

 (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor.

 (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case.

(5) If the thing is improved by its nature, or by the time, the improvement shall inure to the benefit of the creditor.

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted t the usufractuary. 

9.3.15.1. KINDS OF LOSS

Loss in civil law may be:

1. Physical loss - when a thing perishes (Example: A house is burned and reduced to ashes).
2. Legal loss - when a thing goes out of commerce (Example: when it is taken away from its owner) or when a thing, legal before, becomes illegal (US dollars had become impossible to use during the Japanese occupation)
3. Civil loss - a loss when a thing
1. disappears as if its existence is unknown (a missing dog).
2. cannot be recovered although the thing is known (a ring dropped in the sea)
3. cannot be recovered through law (property lost through prescription)

9.3.15.2. RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING DURING PENDENCY OF SUSPENSIVE CONDITION

1. Loss of thing without debtor's fault
2. Loss of thing through debtor's fault
3. Deteriorating of thing without debtor's fault
4. Deterioration of thing through debtor's fault
5. Improvement of thing by nature or by time
6. Improvement of thing at expense of debtor

*Usufruct is the right to enjoy the use and fruits of a thing belonging to another.

9.3.16. RESOLUTORY CONDITION

"ART. 1190: When the conditions have their purpose the extinguishment of an obligation to give the parties, upon the fulfillment of said conditions, shall return to each other what they have received.

In case of loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

In obligations to give, if the resolutory condition in an obligation is fulfilled, the obligation is extinguished.

In obligations to do or not to do, the courts shall determine the retroactive effect of the completion of the resolutory condition.

9.3.17. OBLIGATIONS ACCORDING TO THE PERSON OBLIGED

"ART. 1191: The power to rescind obligations is impled in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and teh rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

This is understood to be without prejudice to the rights of third persons who have acquired the thing.

1. Unilateral obligation - when only one party is obliged to comply with a prestation.
2. Bilteral obligation - when both parties are mutually bound to each other. Both parties are debtors and creditors of each other. These can be reciprocal or non-reciprocal.
1. Reciprocal obligations - each party is the debtor and the creditor of the other 
2. Non-reciprocal obligations - they do no impose simultaneous and correlative performance on both parties

9.3.17.1. REMEDIES IN RECIPROCAL OBLIGATIONS

1. Choice of remedies
• Action for specific fulfillment of the obligation with damages
• Action for rescission of the obligation also with damages
2. Remedy of rescission fo non-compliance - the revocation, cancellation, or repeal of a law, order, or agreement.

9.3.17.2. LIMITATIONS ON RIGHT TO DEMAND RESCISSION

The right to rescind by the injured party is not absolute.

1. Resort to the courts. The injured party has to resort t the courts to assert his rights judicially.
2. Power of court to fix period. The court has the power to allow a period within which a person may be permitted to perform his obligation.
3. Right of third person. If the thing subjet matter of the obligation is in th hands of a third person who acted in good faith, rescission is not available as a remedy.
4. Substantial violation. The rescission will no be granted for slight breaches of contract; the violation should be substantial.
5. Waiver of right. The right to rescind may be waived expressly, or impliedly.

9.3.18. BREACH

"ART. 1192: In case both parties have committed a breach of obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, teh same shall be deemed extinguished, and each shall bear his own damages."

WHEN BOTH PARTIES ARE GUILTY OF BREACH

1.  First infractor known - one party violated his obligation and then other violated his part. The liability of the first infractor should be equitably reduced.
2. First infractor cannot be determined - One party violated his obligation followed by the other, but it cannot be determined which of them was the first infractor.